EUR/USD traded within a narrow range close to the critical support level of 1.0700 during Monday’s European session. The major currency pair has been under significant pressure amidst growing concerns over potential economic instability in France, exacerbated by speculation surrounding Marine Le Pen’s National Rally potentially forming a new government.
French Finance Minister Bruno Le Maire warned on Friday about the risk of a financial crisis if either far-right or far-left factions take power due to their expansive fiscal policies, as reported by Reuters.
On the monetary policy front, European Central Bank (ECB) policymakers have refrained from indicating a clear trajectory for interest rate cuts. Their cautious stance reflects ongoing concerns about persistent wage growth trends, which could potentially reignite inflationary pressures.
Martins Kazaks, ECB Governing Council member and Governor of the Bank of Latvia, emphasized the importance of not allowing inflation to remain above 2% into 2026. He expressed optimism that the ECB would achieve its inflation target by the second half of 2025.
Market sentiment surrounding EUR/USD remained subdued, with the pair oscillating around 1.0700 after finding interim support near 1.0660. The US Dollar Index (DXY), which measures the dollar against a basket of major currencies, showed modest corrections around 105.50, following its recent ascent to a six-week high of 105.80.
Looking ahead, investors are closely monitoring upcoming US economic data, particularly May’s Retail Sales figures scheduled for release on Tuesday. These data are expected to provide insights into consumer spending trends, with analysts forecasting a 0.3% increase following April’s stagnant reading.
Technical Analysis: EUR/USD Outlook
Technically, EUR/USD has retraced into a Symmetrical Triangle pattern on the daily timeframe, hovering around 1.0700. The pair is anticipated to find support near 1.0636, aligning with an upward-sloping trendline originating from October 2023 lows.
On the upside, resistance levels are observed near 1.0750, marked by a downward-sloping trendline from December 2023 highs. The breach of the 200-day Exponential Moving Average (EMA) around 1.0800 underscores the negative long-term outlook for EUR/USD.
The 14-period Relative Strength Index (RSI) remains below 40.00, indicating bearish momentum. Continued RSI levels below this threshold may signal further downside potential for the currency pair.
In conclusion, EUR/USD faces persistent downward pressure amid political uncertainties in France and cautious monetary policy sentiments from the ECB, with technical indicators suggesting a bearish bias for the pair in the near term. Investors await US economic data releases for potential market direction cues.
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